Insurance Availability and Affordability

Insurance at the Intersection: The Business Case for TrustThis article is the third in a four-part series examining the strategic forces reshaping the insurance operating environment.

Insurance pricing is actuarial. Insurance markets are political. The distance between those two statements is where the most consequential strategic challenges facing the industry currently reside.

As catastrophe volatility persists, litigation costs rise, and premium affordability becomes a visible political issue for voters across multiple states, carriers making rational portfolio decisions are increasingly finding those decisions interpreted not as risk management but as market failure. The reputational and regulatory consequences of that misframing are substantial — and they are not self-correcting without deliberate engagement.

For insurers, the challenge is no longer limited to underwriting discipline. It is navigating the political and reputational consequences of actuarially defensible decisions in an environment where policymakers are under pressure to respond to constituents, not to actuaries.

The Actuarial-Political Gap

The feedback loop driving this dynamic is structural. Carriers adjust exposure in response to genuine risk signals — escalating catastrophe losses, rising claims severity, litigation cost inflation, reinsurance pricing. Those adjustments manifest to consumers and their elected representatives as higher premiums, coverage restrictions, or non-renewals. Legislators respond to constituent pressure by intervening in rate regulation, expanding residual markets, imposing non-renewal moratoriums, or restructuring claims handling rules. That intervention reshapes the market conditions carriers then have to navigate — which may prompt further recalibration, completing the loop.

The problem is not that this dynamic exists. Public policy has always shaped insurance markets. The problem is that carriers are often passive recipients of regulatory frameworks designed in response to their decisions, rather than active participants in shaping frameworks that reflect how risk actually works. When the carrier voice is absent from the policy design conversation, the policy defaults to political logic rather than actuarial logic — and the results typically serve neither carriers nor consumers well over time.

Illinois illustrates this dynamic in real time. Legislation currently moving through the state would impose a de facto prior approval rate regime on homeowners insurance — a structure that industry analysts note resembles California's historical framework, which has been widely identified as a contributor to that state's availability crisis. The Illinois Insurance Association has argued publicly that the bill would increase average homeowners premiums by 20% and reduce market competition. Whether or not that specific estimate proves accurate, the underlying dynamic — rate suppression leading to carrier withdrawal leading to availability contraction — has played out with sufficient consistency across states to represent a legitimate risk.

Residual Markets as a Political and Financial Stress Test

Nowhere is the consequence of this feedback loop more visible than in the growth of state-backed insurers of last resort. These mechanisms were designed as narrow safety nets for risks the private market cannot accommodate at any price. They are increasingly absorbing risks the private market will not accommodate at regulated prices — a materially different situation with significantly different financial implications.

California's FAIR Plan, carrying $724 billion in exposure as of December 2025 — a 230% increase since 2022 — is the most acute example nationally. The January 2025 Los Angeles wildfires accelerated an already stressed situation and prompted a new wave of legislative and regulatory response: the Sustainable Insurance Strategy's forward-looking catastrophe modeling requirements, the Make It FAIR Act introduced in early 2026, and a package of nine new consumer protection laws that took effect January 1, 2026. California's path forward — allowing carriers to use approved catastrophe models in exchange for commitments to write in distressed areas — represents an attempt to restructure the public-private framework rather than simply expand the residual market further. Whether it succeeds will depend on whether approved rate levels are sufficient to make the exchange commercially viable for carriers.

Florida offers the contrasting case. Legislative reforms in 2022 and 2023 restructured the litigation environment, reformed assignment-of-benefits rules, and created state-backed reinsurance backstops. The results have been measurable: Citizens Property Insurance ended 2025 with approximately 385,000 policies — its lowest count on record, down from a peak of 1.4 million in 2023 — and filed in December 2025 for a homeowners rate decrease of 2.6%, a striking reversal from the 91% indicated increase it sought in early 2022. Global reinsurers have publicly cited Florida's reforms as a model and returned to the market with expanded appetite. The Florida story is not without caveats — commercial lines are still filing for increases, and long-term stability depends on continued favorable hurricane seasons and litigation discipline — but it demonstrates that proactive legislative engagement can materially restore capital confidence and reverse residual market growth.

The Litigation Dimension

Affordability debates frequently focus on catastrophe volatility as the primary driver of premium pressure. The litigation environment is an equally powerful structural force that receives less systematic attention in the public conversation — and that gap is itself a public affairs problem for the industry.

Third-party litigation funding has moved from a niche financing mechanism to a significant market force. U.S. litigation funding investments are projected at approximately $19 billion in 2025 and are forecast to grow substantially over the next decade. According to Swiss Re analysis, liability claim severity has increased 57% over the past decade, driven substantially by large verdicts and awards. The median nuclear verdict — awards exceeding $10 million — reached $44 million in 2023, up from $21 million in 2020. These dynamics compound catastrophe-driven cost pressure and alter capital requirements in ways that do not respond to mitigation investment or underwriting discipline.

Legislative response is accelerating. Seven states — including Arizona, Colorado, Kansas, Georgia, Montana, Oklahoma, and Tennessee — adopted new litigation funding disclosure laws in 2025. New York Governor Hochul signed the Consumer Litigation Funding Act in December 2025, establishing the state's first comprehensive framework for consumer legal funding transactions. Georgia enacted Senate Bill 69 earlier in 2025, requiring litigation financers to register with state regulators and prohibiting funders from controlling litigation decisions. The federal Litigation Transparency Act of 2025 has been introduced in Congress to extend disclosure requirements to federal court cases. Industry analysts are characterizing 2026 as a potential turning point in the regulatory response to litigation funding.

When carriers raise rates to compensate for inflated legal costs, the public narrative focuses on the rate increase rather than the underlying driver. Connecting those dots — clearly, consistently, and before rate actions rather than after them — is a public affairs function that the industry has historically underinvested in.

Strategic Implications

Market participation is increasingly a policy question. Where and how carriers deploy capacity shapes legislative response, which in turn shapes the conditions of future deployment. The Florida and California cases demonstrate both directions of this dynamic. Carriers that treat geographic exposure decisions as purely financial choices, without modeling the regulatory and political consequences, are operating with an incomplete risk framework.

Affordability is multifactorial, and the public conversation rarely reflects that complexity. Catastrophe exposure, litigation costs, reinsurance market conditions, inflation, and regulatory structures interact to produce premium levels that are actuarially rational but politically difficult. Carriers that explain only one driver in isolation — and that typically happens only when the explanation is already defensive — cede the narrative to those with simpler stories to tell.

Proactive engagement in framework design matters more than reactive compliance. Residual market reform, tort recalibration, mitigation incentive programs, and public-private catastrophe risk sharing all require carrier participation in design to function well. The Florida reform story is, at its core, a story about what happens when industry engages constructively with legislators on framework design before a crisis forces a solution. The California story is, at least in part, a story about what happens when that engagement fails to occur at sufficient scale or sufficient time.

Narrative architecture is a strategic requirement, not a communications afterthought. The gap between actuarial defensibility and public legitimacy does not close on its own. Carriers that have developed clear, durable articulations of how underwriting discipline supports long-term market stability — and that deploy those articulations proactively with regulators, legislators, media, and community stakeholders — are better positioned to shape the regulatory environment they operate in. Those that explain themselves only in crisis are at a permanent structural disadvantage.

Looking Ahead

The politics of availability will not stabilize on their own. As long as premiums remain elevated relative to consumer expectations, state-level legislative activity will continue. As long as the litigation environment drives claims severity higher, affordability pressure will persist independent of weather outcomes. And as long as residual markets absorb risk at scales they were not designed to carry, the fiscal and political consequences will periodically force legislative response.

Market stability is no longer purely an actuarial objective. It is a public affairs outcome — one that requires integrated strategy across underwriting, government relations, external communications, and framework engagement. Leadership teams should assess whether those functions are aligned around a coherent view of the markets in which they operate, and whether the firm's voice in the policy conversations shaping those markets is proportionate to the stakes.

Bushnell Mueller helps insurers and their distribution and risk partners navigate the policy, regulatory, and reputational dimensions of strategic business issues. For more on our work on market stability, affordability, and state regulatory strategy, contact us.